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Asia: Polyester fiber intermediates hurt by tightening credit in China

Increase font size  Decrease font size Date:2011-04-21   Views:724
China's move to reduce foreign capital inflow by reducing domestic banks' short-term foreign debt quotas has hurt the fiber intermediate market because some traders and producers are unable to raise letters of credit, market sources said Friday.

In the past, Chinese polyester makers needed just to raise one letter of credit to cover their raw material purchases but now have to split the LC into three or four, said a South Korean purified terephthalic acid maker. "Even major polyester producers need to split up their LCs," said the PTA maker. "So sometimes we need to delay loading the cargoes until we receive all the LCs from separate banks."

The need to split up the LCs is because Chinese banks have cut credit limits, especially for foreign currencies since April 1, when the new regulations came into effect.

"In the past, we could raise letters of credit based on the amount of the deal before the money is credited into our account. Now, it's strictly based on how much money we have in our accounts. The credit limit is also lower," said a Chinese trader without specifying by how much his credit had been reduced.

Another polyester maker said they used to be able to buy two or three cargoes of feedstock but they only have enough money to one now. "In the past, when prices drop, we could buy more to stock up but now, even when prices were low, we could only afford to buy on a need-to-use basis," he said.

A monoethylene glycol trader agreed. "About one to two weeks ago, I had a buyer, who is an end-user who had to raise two LCs to buy a cargo," he said. "I guess the Chinese banks do not have enough foreign currency." However, the impact has been felt mostly by traders. MEG producers said they had not encountered customers having to raise multiple LCs for a single cargo.

"We sell mostly on contracts, so there are no issues with LCs," said a South Korean MEG producer.

Another MEG producer said: "It's the first time we are hearing of this. We don't see that from our customers."

Industry watchers said the difference is because PTA traders tend to be hit more by the credit curb because the PTA spot market is much more active than MEG.

"Polyester makers tend to be 100% covered by contract for MEG and around 90% for PTA," said a Chinese trader.

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